On tap at the State Capitol: tax cuts vs. spending

Tax cuts vs. education and health care. That's one way to describe the clash of philosophy and priorities that will dominate the remainder of the year's legislative session. It took clearer shape Monday with the rollout of the House GOP's proposal for a whopping $2 billion in tax cuts over the next two years and considerably more in years to come.

The contest between House Republicans and DFL Gov. Mark Dayton and the Senate DFL majority might also be understood as a difference in investment strategy.

The GOP tax bill invests in individuals in the short term, primarily with a two-year personal and dependent income tax exemption, and heavily in businesses over the long term. It would start next year a six-year phaseout of the statewide property tax, which is scheduled to collect $1.7 billion over the next two years from businesses and seasonal recreational property owners.

The DFL approach, by contrast, emphasizes investment in human capital via the services provided by public institutions and programs. Take, for example, the higher education budget for the next two years. Dayton proposes to spend $288 million and the Senate $205 million more than current law would provide. The House's target is a $53 million increase, including no increase for the University of Minnesota.

Which approach best delivers the results Minnesotans seek will be hotly debated in coming weeks, as lawmakers try to complete their biennial budget-setting work by the Constitution's May 18 deadline.

It's notable that in a number of instances, House Republicans appear to be using targeted tax relief — "tax expenditures," as the wonks describe it — to pursue the same policy goals that DFLers are pursuing via spending.

Continuing the higher education example: DFLers are proposing to use state spending to clamp down on tuition increases at public colleges and universities and to beef up student financial aid via the State Grant Program. The House tax bill creates a sizable new tax credit for principal and interest payments on student loans, costing state coffers $130 million over two years. Add that sum to the House's proposed increase in direct spending on higher ed, and the $183 million total is more nearly in the Senate's league.

What's more: Any exemption or credit that reduces an individual's state income tax liability raises his or her federal liability, since state taxes are deductible for federal tax purposes. It's as if any state tax credit is automatically reduced by 30 or more percent before it can be applied to its intended public purpose.

Those are among the reasons this Editorial Board recommends a $200 million boost in higher education spending, including a sizable increase in the State Grant Program, rather than a tax credit for loan payers. It's why we hope a number of the income tax credits in the House bill will be converted to increases in state spending before the session's end.